Phenom rookie pitcher Nuke LaLoosh’s first encounter with grizzled veteran catcher Crash Davis in the 1988 comedy “Bull Durham” was memorable. Nuke challenged Crash to a fight outside the local bar, and Crash challenged Nuke to hit Crash in the chest with a baseball. After thinking about it, Nuke threw the ball and missed Crash by several feet. Angry, Nuke charged at Crash who dropped Nuke with one punch. Crash responded, “I’m Crash Davis; I’m your new catcher, and you just got lesson number one. Don’t think. You can only hurt the ball club.”
To many investors, this is a difficult time to make money. Interest rates are at historical lows, the U.S. economy is increasingly tied into the rest of the world which is having their own set of problems, and government taxation and regulation partially explain decreasing manufacturing and increasing real unemployment.
Just before every recession short-term investors invested under the assumption stock prices and housing values would rise indefinitely. There are plenty of charts and graphs on the Internet clearly showing the cyclical nature of investing. The value of time is the greatest asset investors have. Over a long enough period of time, home equity will increase through monthly loan payments and appreciating market value, and stock values rise. Yes, there will be downturns, but as grizzled veteran stock broker Lou Mannheim told young buck Bud Fox in the 1987 film “Wall Street,” “Quick buck artists come and go with every bull market, but the steady players make it through the bear market.”
Today, smart investors don’t have to think much. Instead of purchasing individual investments, anyone can invest in mutual funds which are baskets of stocks and bonds selected by professional money managers whose job it is to maximize yield based on the fund’s investment objectives. Fund types include very conservative U.S. Treasury securities to highly risky international stocks. In the last few years, so-called “lifestyle” mutual funds have been created to target certain age groups, and target-date funds indexed to an individual’s planned retirement date.
The keys to effective and efficient investing are diversity and cost. Mutual funds generally do a better job of diversification than purchasing individual stocks and bonds. Certain funds require less management and hence are less expensive to the investor. It saves on time and doesn’t take much research and thought.
As Nuke LaLoosh matured, he began to understand the game within the game. A good friend of his used to say, “This is a very simple game. You throw the ball, you catch the ball, you hit the ball. Sometimes you win, sometimes you lose, sometimes it rains.” Investing sounds a lot like baseball.